ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
March 31,
2019
|
|
June 30,
2018
|
|
|
|
As Adjusted
|
|
(Dollars in Thousands, Except
Share Data)
|
ASSETS
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
65,592
|
|
|
$
|
96,165
|
|
Accounts receivable, net
|
45,293
|
|
|
41,810
|
|
Current contract assets
|
314,745
|
|
|
304,378
|
|
Contract costs
|
24,325
|
|
|
20,500
|
|
Prepaid expenses and other current assets
|
11,124
|
|
|
10,509
|
|
Prepaid income taxes
|
1,573
|
|
|
2,601
|
|
Total current assets
|
462,652
|
|
|
475,963
|
|
Property, equipment and leasehold improvements, net
|
7,589
|
|
|
9,806
|
|
Computer software development costs, net
|
1,452
|
|
|
646
|
|
Goodwill
|
73,534
|
|
|
75,590
|
|
Intangible assets, net
|
31,756
|
|
|
35,310
|
|
Non-current contract assets
|
358,709
|
|
|
340,622
|
|
Deferred tax assets
|
1,696
|
|
|
11,090
|
|
Other non-current assets
|
1,279
|
|
|
1,297
|
|
Total assets
|
$
|
938,667
|
|
|
$
|
950,324
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
Accounts payable
|
$
|
4,023
|
|
|
$
|
4,230
|
|
Accrued expenses and other current liabilities
|
42,746
|
|
|
39,515
|
|
Income taxes payable
|
35,582
|
|
|
1,698
|
|
Borrowings under credit agreement
|
220,000
|
|
|
170,000
|
|
Current deferred revenue
|
24,415
|
|
|
15,150
|
|
Total current liabilities
|
326,766
|
|
|
230,593
|
|
Non-current deferred revenue
|
19,312
|
|
|
12,354
|
|
Deferred income taxes
|
154,901
|
|
|
214,125
|
|
Other non-current liabilities
|
12,403
|
|
|
17,068
|
|
Commitments and contingencies (Note 16)
|
|
|
|
Series D redeemable convertible preferred stock, $0.10 par value—
Authorized— 3,636 shares as of March 31, 2019 and June 30, 2018
Issued and outstanding— none as of March 31, 2019 and June 30, 2018
|
—
|
|
|
—
|
|
Stockholders’ equity:
|
|
|
|
|
|
Common stock, $0.10 par value— Authorized—210,000,000 shares
Issued— 103,478,590 shares at March 31, 2019 and 103,130,300 shares at June 30, 2018
Outstanding— 69,108,515 shares at March 31, 2019 and 71,186,701 shares at June 30, 2018
|
10,348
|
|
|
10,313
|
|
Additional paid-in capital
|
730,830
|
|
|
715,475
|
|
Retained earnings
|
1,224,377
|
|
|
1,065,507
|
|
Accumulated other comprehensive income
|
1,229
|
|
|
1,388
|
|
Treasury stock, at cost—34,370,075 shares of common stock at March 31, 2019 and 31,943,599 shares at June 30, 2018
|
(1,541,499
|
)
|
|
(1,316,499
|
)
|
Total stockholders’ equity
|
425,285
|
|
|
476,184
|
|
Total liabilities and stockholders’ equity
|
$
|
938,667
|
|
|
$
|
950,324
|
|
See accompanying Notes to these unaudited consolidated financial statements.
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Additional Paid-in Capital
|
|
Retained Earnings
|
|
Accumulated Other Comprehensive Income
|
|
Treasury Stock
|
|
Total Stockholders' Equity
|
|
Number of Shares
|
|
$0.10 Par Value
|
|
|
|
|
Number of Shares
|
|
Cost
|
|
|
(Dollars in Thousands, Except Share Data)
|
June 30, 2018, As Adjusted
|
103,130,300
|
|
|
$
|
10,313
|
|
|
$
|
715,475
|
|
|
$
|
1,065,507
|
|
|
$
|
1,388
|
|
|
31,943,599
|
|
|
$
|
(1,316,499
|
)
|
|
$
|
476,184
|
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
38,066
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
38,066
|
|
Other comprehensive (loss)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(423
|
)
|
|
|
|
|
|
(423
|
)
|
Exercise of stock options
|
90,009
|
|
|
9
|
|
|
3,702
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
3,711
|
|
Issuance of restricted stock units
|
58,829
|
|
|
6
|
|
|
(3,290
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,284
|
)
|
Repurchase of common stock
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
473,376
|
|
|
(50,000
|
)
|
|
(50,000
|
)
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
8,865
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
8,865
|
|
September 30, 2018
|
103,279,138
|
|
|
$
|
10,328
|
|
|
$
|
724,752
|
|
|
$
|
1,103,573
|
|
|
$
|
965
|
|
|
32,416,975
|
|
|
$
|
(1,366,499
|
)
|
|
$
|
473,119
|
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
59,217
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
59,217
|
|
Other comprehensive (loss)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(895
|
)
|
|
|
|
|
|
(895
|
)
|
Exercise of stock options
|
15,902
|
|
|
2
|
|
|
757
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
759
|
|
Issuance of restricted stock units
|
100,643
|
|
|
10
|
|
|
(6,351
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(6,341
|
)
|
Repurchase of common stock
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,175,531
|
|
|
(100,000
|
)
|
|
(100,000
|
)
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
6,335
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6,335
|
|
December 31, 2018
|
103,395,683
|
|
|
$
|
10,340
|
|
|
$
|
725,493
|
|
|
$
|
1,162,790
|
|
|
$
|
70
|
|
|
33,592,506
|
|
|
$
|
(1,466,499
|
)
|
|
$
|
432,194
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
61,587
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
61,587
|
|
Other comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,159
|
|
|
|
|
|
|
1,159
|
|
Exercise of stock options
|
39,303
|
|
|
4
|
|
|
1,444
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
1,448
|
|
Issuance of restricted stock units
|
43,604
|
|
|
4
|
|
|
(2,361
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,357
|
)
|
Repurchase of common stock
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
777,569
|
|
|
(75,000
|
)
|
|
(75,000
|
)
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
6,254
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6,254
|
|
March 31, 2019
|
103,478,590
|
|
|
$
|
10,348
|
|
|
$
|
730,830
|
|
|
$
|
1,224,377
|
|
|
$
|
1,229
|
|
|
34,370,075
|
|
|
$
|
(1,541,499
|
)
|
|
$
|
425,285
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Additional Paid-in Capital
|
|
Retained Earnings
|
|
Accumulated Other Comprehensive Income
|
|
Treasury Stock
|
|
Total Stockholders' Equity
|
|
Number of Shares
|
|
$0.10 Par Value
|
|
|
|
|
Number of Shares
|
|
Cost
|
|
|
(Dollars in Thousands, Except Share Data)
|
June 30, 2017, As Adjusted
|
102,567,129
|
|
|
$
|
10,257
|
|
|
$
|
687,479
|
|
|
$
|
780,365
|
|
|
$
|
1,459
|
|
|
29,145,976
|
|
|
$
|
(1,116,499
|
)
|
|
$
|
363,061
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
40,521
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
40,521
|
|
Other comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,401
|
|
|
|
|
|
|
1,401
|
|
Exercise of stock options
|
66,567
|
|
|
6
|
|
|
2,404
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
2,410
|
|
Issuance of restricted stock units
|
58,398
|
|
|
6
|
|
|
(1,659
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,653
|
)
|
Repurchase of common stock
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
839,159
|
|
|
(50,000
|
)
|
|
(50,000
|
)
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
6,414
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6,414
|
|
September 30, 2017, As Adjusted
|
102,692,094
|
|
|
$
|
10,269
|
|
|
$
|
694,638
|
|
|
$
|
820,886
|
|
|
$
|
2,860
|
|
|
29,985,135
|
|
|
$
|
(1,166,499
|
)
|
|
$
|
362,154
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
132,031
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
132,031
|
|
Other comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
73
|
|
|
|
|
|
|
73
|
|
Exercise of stock options
|
36,767
|
|
|
4
|
|
|
1,129
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
1,133
|
|
Issuance of restricted stock units
|
47,058
|
|
|
5
|
|
|
(1,794
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,789
|
)
|
Repurchase of common stock
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
756,349
|
|
|
(50,000
|
)
|
|
(50,000
|
)
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
5,455
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,455
|
|
December 31, 2017, As Adjusted
|
102,775,919
|
|
|
$
|
10,278
|
|
|
$
|
699,428
|
|
|
$
|
952,917
|
|
|
$
|
2,933
|
|
|
30,741,484
|
|
|
$
|
(1,216,499
|
)
|
|
$
|
449,057
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
44,505
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
44,505
|
|
Other comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
924
|
|
|
|
|
|
|
924
|
|
Exercise of stock options
|
112,972
|
|
|
11
|
|
|
3,815
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
3,826
|
|
Issuance of restricted stock units
|
47,714
|
|
|
5
|
|
|
(2,042
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,037
|
)
|
Repurchase of common stock
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
649,479
|
|
|
(50,000
|
)
|
|
(50,000
|
)
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
5,353
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,353
|
|
March 31, 2018, As Adjusted
|
102,936,605
|
|
|
$
|
10,294
|
|
|
$
|
706,554
|
|
|
$
|
997,422
|
|
|
$
|
3,857
|
|
|
31,390,963
|
|
|
$
|
(1,266,499
|
)
|
|
$
|
451,628
|
|
See accompanying Notes to these unaudited consolidated financial statements.
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
March 31,
|
|
2019
|
|
2018
|
|
|
|
As Adjusted
|
|
(Dollars in Thousands)
|
Cash flows from operating activities:
|
|
|
|
|
|
Net income
|
$
|
158,869
|
|
|
$
|
217,057
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
Depreciation and amortization
|
6,063
|
|
|
4,902
|
|
Net foreign currency losses
|
23
|
|
|
1,086
|
|
Stock-based compensation
|
21,454
|
|
|
17,222
|
|
Deferred income taxes
|
(49,847
|
)
|
|
(123,443
|
)
|
Provision for bad debts
|
474
|
|
|
1,373
|
|
Other non-cash operating activities
|
341
|
|
|
314
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
Accounts receivable
|
(4,183
|
)
|
|
1,429
|
|
Contract assets
|
(27,397
|
)
|
|
(7,767
|
)
|
Contract costs
|
(3,825
|
)
|
|
(651
|
)
|
Prepaid expenses, prepaid income taxes, and other assets
|
201
|
|
|
4,908
|
|
Accounts payable, accrued expenses, income taxes payable and other liabilities
|
32,980
|
|
|
(4,448
|
)
|
Deferred revenue
|
17,983
|
|
|
15,847
|
|
Net cash provided by operating activities
|
153,136
|
|
|
127,829
|
|
Cash flows from investing activities:
|
|
|
|
|
|
Purchases of property, equipment and leasehold improvements
|
(206
|
)
|
|
(217
|
)
|
Payments for business acquisitions, net of cash
|
—
|
|
|
(33,700
|
)
|
Payments for capitalized computer software costs
|
(1,094
|
)
|
|
(299
|
)
|
Net cash used in investing activities
|
(1,300
|
)
|
|
(34,216
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
Exercises of stock options
|
5,881
|
|
|
7,402
|
|
Repurchases of common stock
|
(224,182
|
)
|
|
(154,365
|
)
|
Payments of tax withholding obligations related to restricted stock
|
(11,916
|
)
|
|
(5,412
|
)
|
Deferred business acquisition payments
|
(1,700
|
)
|
|
(2,600
|
)
|
Proceeds from credit agreement
|
50,000
|
|
|
30,000
|
|
Payments of credit agreement issuance costs
|
—
|
|
|
(351
|
)
|
Net cash used in financing activities
|
(181,917
|
)
|
|
(125,326
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
(492
|
)
|
|
834
|
|
Decrease in cash and cash equivalents
|
(30,573
|
)
|
|
(30,879
|
)
|
Cash and cash equivalents, beginning of period
|
96,165
|
|
|
101,954
|
|
Cash and cash equivalents, end of period
|
$
|
65,592
|
|
|
$
|
71,075
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
Income taxes paid, net
|
$
|
39,123
|
|
|
$
|
38,662
|
|
Interest paid
|
5,728
|
|
|
3,456
|
|
Supplemental disclosure of non-cash investing and financing activities:
|
|
|
|
Change in purchases of property, equipment and leasehold improvements included in accounts payable and accrued expenses
|
$
|
10
|
|
|
$
|
(31
|
)
|
Change in repurchases of common stock included in accounts payable and accrued expenses
|
818
|
|
|
(4,365
|
)
|
See accompanying Notes to these unaudited consolidated financial statements.
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. Interim Unaudited Consolidated Financial Statements
The accompanying interim unaudited consolidated financial statements of Aspen Technology, Inc. and its subsidiaries have been prepared on the same basis as our annual consolidated financial statements. We have omitted certain information and footnote disclosures normally included in our annual consolidated financial statements. Such interim unaudited consolidated financial statements have been prepared in conformity with U.S. Generally Accepted Accounting Principles (GAAP), as defined in the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 270,
Interim Reporting
, for interim financial information and with the instructions to Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. It is suggested that these unaudited consolidated financial statements be read in conjunction with the audited consolidated financial statements for the year ended
June 30, 2018
, which are contained in our Annual Report on Form 10-K, as previously filed with the U.S. Securities and Exchange Commission (SEC). In the opinion of management, all adjustments, consisting of normal and recurring adjustments, considered necessary for a fair presentation of the financial position, results of operations, and cash flows at the dates and for the periods presented have been included and all intercompany accounts and transactions have been eliminated in consolidation. The results of operations for the three and nine months ended
March 31, 2019
are not necessarily indicative of the results to be expected for the subsequent quarter or for the full fiscal year.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Unless the context requires otherwise, references to we, our and us refer to Aspen Technology, Inc. and its subsidiaries.
2. Significant Accounting Policies
(a)
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Aspen Technology, Inc. and our wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
(b)
Significant Accounting Policies
Our significant accounting policies are described in Note 2 to the consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended
June 30, 2018
. We adopted Accounting Standards Update (ASU) No. 2014-09,
Revenue from Contracts with Customers
("Topic 606") and ASU No. 2017-01,
Business Combinations (Topic 805) - Clarifying the Definition of a Business
effective July 1, 2018. Refer to Note 2 (f), “New Accounting Pronouncements Adopted in Fiscal 2019,” for further information regarding the adoption of Topic 606 and ASU No. 2017-01. There were no other material changes to our significant accounting policies during the three and nine months ended
March 31, 2019
.
(c) Loss Contingencies
We accrue estimated liabilities for loss contingencies arising from claims, assessments, litigation and other sources when it is probable that a liability has been incurred and the amount of the claim, assessment or damages can be reasonably estimated. We believe that we have sufficient accruals to cover any obligations resulting from claims, assessments or litigation that have met these criteria.
(d)
Foreign Currency Transactions
Foreign currency exchange gains and losses generated from the settlement and remeasurement of transactions denominated in currencies other than the functional currency of our subsidiaries are recognized in our results of operations as incurred as a component of other (expense), net. Net foreign currency exchange losses were
$(0.1) million
and
$(0.5) million
during the three and nine months ended
March 31, 2019
, respectively, and
$(0.1) million
and
$(1.0) million
during the three and nine months ended
March 31, 2018
, respectively.
(e) Research and Development Expense
We charge research and development expenditures to expense as the costs are incurred. Research and development expenses consist primarily of personnel expenses related to the creation of new products, enhancements and engineering changes to existing products and costs of acquired technology prior to establishing technological feasibility.
We acquired
no
technology during the three and nine months ended
March 31, 2019
and
2018
, respectively, that was expensed as research and development expense.
(f)
New Accounting Pronouncements Adopted in Fiscal 2019
In May 2014, the FASB issued Topic 606, which supersedes the revenue recognition requirements in
Revenue Recognition (Topic 605)
, and requires entities to recognize revenue when they transfer promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Under the new guidance, an entity is required to evaluate revenue recognition through a five-step process. In applying the principles of Topic 606, more judgment and estimates are required within the revenue recognition process than were required under previous U.S. GAAP, including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price, and allocating the transaction price to each separate performance obligation.
We adopted Topic 606 effective July 1, 2018 using the full retrospective method, which required us to adjust the prior periods presented. The adoption of Topic 606 impacted the timing of the license portion of the revenue recognized from our term contracts. Under the new standard, for arrangements that include term-based software licenses bundled with maintenance and support, we are now required to recognize as revenue a portion of the arrangement fee upon delivery of the software license. We recognize as revenue a portion of the arrangement fee related to maintenance and support, professional services, and training over time as the services are provided. Additionally, under the new standard, we capitalize certain direct and incremental commission costs to obtain a contract and amortize such costs over the expected period of benefit, rather than expensing them as incurred in the period that the commissions are earned. See Note 3, "Revenue from Contracts with Customers," to our Unaudited Consolidated Financial Statements for more information on our accounting policies as a result of the adoption of Topic 606.
In January 2017, the FASB issued ASU No. 2017-01,
Business Combinations (Topic 805) - Clarifying the Definition of a Business.
The amendment changes the definition of a business to assist entities in evaluating when a set of transferred assets and activities constitutes a business. We adopted ASU No. 2017-01 effective July 1, 2018. The adoption of ASU No. 2017-01 did not have a material effect on our consolidated financial statements or related disclosures.
In March 2018, the FASB issued ASU No. 2018-05,
Income Taxes (Topic 740) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118
. The amendment provides guidance on accounting for the impact of the Tax Cuts and Jobs Act (the “Tax Act”) and allows entities to complete the accounting under ASC 740 within a one-year measurement period from the Tax Act enactment date. This standard is effective upon issuance. The Tax Act has several significant changes that impact all taxpayers, including a transition tax, which is a one-time tax charge on accumulated, undistributed foreign earnings. The calculation of accumulated foreign earnings requires an analysis of each foreign entity’s financial results going back to 1986. We have concluded that we will not be subject to the transition tax associated with our accumulated, undistributed foreign earnings.
In August 2018, the FASB issued ASU 2018-15,
Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40) - Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract.
The amendment aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by the amendment. The ASU is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2019. We adopted ASU No. 2018-15 effective October 1, 2018. The adoption of ASU No. 2018-15 did not have a material effect on our consolidated financial statements or related disclosures.
(g)
Recently Issued Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02,
Leases (Topic 842)
. Under the amendment, lessees will be required to recognize virtually all of their leases on the balance sheet, by recording a right-of-use asset and lease liability. The ASU is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2018. Early adoption is permitted. We are currently evaluating the impact of ASU No. 2016-02 on our consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-13,
Fair Value Measurement (Topic 820) - Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement.
The amendment modifies, removes, and adds certain disclosure requirements on fair value measurements. The ASU is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted. We are currently evaluating the impact of ASU No. 2018-13 on our consolidated financial statements.
3. Revenue from Contracts with Customers
In accordance with Topic 606, we account for a customer contract when both parties have approved the contract and are committed to perform their respective obligations, each party’s rights can be identified, payment terms can be identified, the contract has commercial substance, and it is probable that we will collect substantially all of the consideration to which we are entitled. Revenue is recognized when, or as, performance obligations are satisfied by transferring control of a promised product or service to a customer.
Nature of Products and Services
We generate revenue from the following sources: (1) License revenue; (2) Maintenance revenue; and (3) Services and other revenue. We sell our software products to end users primarily under fixed-term licenses. We license our software products primarily through a subscription offering which we refer to as our aspenONE licensing model, which includes software maintenance and support, known as our Premier Plus SMS offering, for the entire term. Our aspenONE products are organized into three suites: 1) engineering; 2) manufacturing and supply chain; and 3) asset performance management. The aspenONE licensing model provides customers with access to all of the products within the aspenONE suite(s) they license. We refer to these arrangements as token arrangements. Tokens are fixed units of measure. The amount of software usage is limited by the number of tokens purchased by the customer.
We also license our software through point product term arrangements, which include our Premier Plus SMS offering for the entire term.
We determine revenue recognition through the following steps:
•
Identification of the contract, or contracts, with a customer;
•
Identification of the performance obligations in the contract;
•
Determination of the transaction price;
•
Allocation of the transaction price to the performance obligations in the contract; and
•
Recognition of revenue when, or as, we satisfy a performance obligation.
Term-based Arrangements:
Term-based arrangements consist of on-premise term licenses as well as maintenance.
Term licenses
License revenue consists primarily of product and related revenue from our aspenONE licensing model and point product arrangements.
When a customer elects to license our products under our aspenONE licensing model, the customer receives, for the term of the arrangement, the right to all software products in the licensed aspenONE software suite. When a customer elects to license point products, the customer receives, for the term of the arrangement, the right to license specified products in the licensed aspenONE software suite. Revenue from initial product licenses is recognized upfront upon delivery.
Maintenance
When a customer elects to license our products under our aspenONE licensing model, our Premier Plus SMS offering is included for the entire term of the arrangement and the customer receives, for the term of the arrangement, the right to any updates that may be introduced into the licensed aspenONE software suite. When a customer elects to license point products, our Premier Plus SMS offering is included for the entire term of the arrangement and the customer receives, for the term of the arrangement, the right to any updates that may be introduced related to the specified products licensed. Maintenance represents a stand-ready obligation and, due to our obligation to provide unspecified future software updates on a when-and-if available basis as well as telephone support services, we are required to recognize revenue ratably over the term of the arrangement.
Services and Other Revenue
Professional Services Revenue
Professional services are provided to customers on a time-and-materials ("T&M") or fixed-price basis. The obligation to provide professional services is generally satisfied over time, with the customer simultaneously receiving and consuming the benefits as we satisfy our performance obligation. For professional services, revenue is recognized by measuring progress toward the completion of our obligations. We recognize professional services fees for our T&M contracts based upon hours worked and contractually agreed-upon hourly rates. Revenue from fixed-price engagements is recognized using the proportional performance method based on the ratio of costs incurred to the total estimated project costs. The use of the proportional performance method is dependent upon our ability to reliably estimate the costs to complete a project. We use historical experience as a basis for future estimates to complete current projects. Additionally, we believe that costs are the best available measure of performance. Out-of-pocket expenses which are reimbursed by customers are recorded as revenue.
Training Revenue
We provide training services to our customers, including on-site, Internet-based, public and customized training. The obligation to provide training services is generally satisfied over time, with the customer simultaneously receiving and consuming the benefits as we satisfy our performance obligation. Revenue is recognized in the period in which the services are performed.
Contracts with Multiple Performance Obligations
Our contracts generally contain more than one of the products and services listed above, each of which is separately accounted for as a distinct performance obligation.
Allocation of consideration
: We allocate total contract consideration to each distinct performance obligation in an arrangement on a relative standalone selling price basis. The standalone selling price reflects the price we would charge for a specific product or service if it was sold separately in similar circumstances and to similar customers.
If the arrangement contains professional services and other products or services, we allocate to the professional service obligation a portion of the total contract consideration based on the standalone selling price of professional services that is observed from consistently priced standalone sales.
The standalone selling price for term licenses, which are always sold with maintenance, is the price for the combined license and maintenance bundle. The amount assigned to the license and maintenance bundle is separated into license and maintenance amounts using the respective standalone selling prices represented by the value relationship between the software license and maintenance.
When two or more contracts are entered into at or near the same time with the same customer, we evaluate the facts and circumstances associated with the negotiation of those contracts. Where the contracts are negotiated as a package, we will account for them as a single arrangement and allocate the consideration for the combined contracts among the performance obligations accordingly.
Standalone selling price
: When available, we use directly observable transactions to determine the standalone selling prices for performance obligations. Generally, directly observable data is not available for term licenses and maintenance. When term licenses are sold together with maintenance in a bundled arrangement, we estimate a standalone selling price for these distinct performance obligations using relevant information, including our overall pricing objectives and strategies and historical pricing data, and taking into consideration market conditions and other factors, such as customer type and geography.
Other policies and judgments
Payment terms and conditions vary by contract type, although terms generally include a requirement of payment annually over the term of the license arrangement. Therefore, we generally receive payment from a customer after the performance obligation related to the license has been satisfied, and therefore, our contracts generally contain a significant financing component. The significant financing component is calculated utilizing an interest rate that derives the net present value of the performance obligations delivered on an upfront basis based on the allocation of consideration. We have instituted a customer portfolio approach in assigning interest rates. The rates are determined at contract inception and are based on the credit characteristics of the customers within each portfolio.
Contract modifications
We sometimes enter into agreements to modify previously executed contracts, which constitute contract modifications. We assess each of these contract modifications to determine (i) if the additional products and services are distinct from the products and services in the original arrangement; and (ii) if the amount of consideration expected for the added products and services reflects the stand-alone selling price of those products and services, as adjusted for contract-specific circumstances. A contract modification meeting both criteria is accounted for as a separate contract. A contract modification not meeting both criteria is considered a change to the original contract and is accounted for on either (i) a prospective basis as a termination of the existing contract and the creation of a new contract; or (ii) a cumulative catch-up basis. Generally, our contract modifications meet both criteria and are accounted for as a separate contract, as adjusted for contract-specific circumstances.
Disaggregation of Revenue
We disaggregate our revenue by region, type of performance obligation, timing of revenue recognition, and segment as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
Nine Months Ended
March 31,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
|
As Adjusted
|
|
|
|
As Adjusted
|
|
(Dollars in Thousands)
|
Revenue by region:
|
|
|
|
|
|
|
|
United States
|
$
|
54,022
|
|
|
$
|
39,735
|
|
|
$
|
134,774
|
|
|
$
|
130,561
|
|
Europe
|
33,665
|
|
|
36,662
|
|
|
109,085
|
|
|
98,673
|
|
Other (1)
|
60,297
|
|
|
51,361
|
|
|
158,717
|
|
|
130,541
|
|
|
$
|
147,984
|
|
|
$
|
127,758
|
|
|
$
|
402,576
|
|
|
$
|
359,775
|
|
|
|
|
|
|
|
|
|
Revenue by type of performance obligation:
|
|
|
|
|
|
|
|
Term licenses
|
$
|
98,493
|
|
|
$
|
79,073
|
|
|
$
|
255,616
|
|
|
$
|
214,938
|
|
Maintenance
|
41,878
|
|
|
40,897
|
|
|
125,955
|
|
|
121,890
|
|
Professional services and other
|
7,613
|
|
|
7,788
|
|
|
21,005
|
|
|
22,947
|
|
|
$
|
147,984
|
|
|
$
|
127,758
|
|
|
$
|
402,576
|
|
|
$
|
359,775
|
|
|
|
|
|
|
|
|
|
Revenue by segment:
|
|
|
|
|
|
|
|
Subscription and software
|
$
|
140,371
|
|
|
$
|
119,970
|
|
|
$
|
381,571
|
|
|
$
|
336,828
|
|
Services and other
|
7,613
|
|
|
7,788
|
|
|
21,005
|
|
|
22,947
|
|
|
$
|
147,984
|
|
|
$
|
127,758
|
|
|
$
|
402,576
|
|
|
$
|
359,775
|
|
____________________________________________
|
|
(1)
|
Other consists primarily of Asia Pacific, Canada, Latin America and the Middle East.
|
Contract Balances
The difference in the opening and closing balances of our contract assets and deferred revenue primarily results from the timing difference between our performance and the customer’s payment. We fulfill our obligations under a contract with a customer by transferring products and services in exchange for consideration from the customer. We recognize a contract asset when we transfer products or services to a customer and the right to consideration is conditional on something other than the passage of time. Accounts receivable are recorded when the customer has been billed or the right to consideration is unconditional. We recognize deferred revenue when we have received consideration or an amount of consideration is due from the customer and we have a future obligation to transfer products or services.
Our contract assets and deferred revenue were as follows as of
March 31, 2019
and
June 30, 2018
:
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
June 30, 2018
|
|
|
|
As Adjusted
|
|
(Dollars in Thousands)
|
Contract assets
|
$
|
673,454
|
|
|
$
|
645,000
|
|
Deferred revenue
|
(43,727
|
)
|
|
(27,504
|
)
|
|
$
|
629,727
|
|
|
$
|
617,496
|
|
Contract assets and deferred revenue are presented net at the contract level for each reporting period.
The change in deferred revenue in the nine months ended
March 31, 2019
, excluding the impact of the netting of contract assets and deferred revenue, was primarily due to an increase in new billings in advance of revenue recognition, partially offset by
$11.5 million
of revenue recognized that was included in deferred revenue at June 30, 2018.
Contract Costs
We pay commissions for new product sales as well as for renewals of existing contracts. Commissions paid to obtain renewal contracts are not commensurate with the commissions paid for new product sales and therefore, a portion of the commissions paid for new contracts relate to future renewals.
We account for new product sales commissions using a portfolio approach and allocate the cost of commissions in proportion to the allocation of transaction price of license and maintenance performance obligations, including assumed renewals. Commissions allocated to the license and license renewal components are expensed at the time the license revenue is recognized. Commissions allocated to maintenance are capitalized and amortized on a straight-line basis over a period of
four
to
eight years
for new contracts, reflecting our estimate of the expected period that we will benefit from those commissions.
Amortization of capitalized contract costs is included in sales and marketing expenses in our Condensed Consolidated Statement of Operations.
Transaction Price Allocated to Remaining Performance Obligations
The following table includes the aggregate amount of the transaction price allocated as of
March 31, 2019
to the performance obligations that are unsatisfied (or partially unsatisfied) at the end of the reporting period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30,
|
|
2019
|
|
2020
|
|
2021
|
|
2022
|
|
2023
|
|
Thereafter
|
|
(Dollars in Thousands)
|
License
|
$
|
24,904
|
|
|
$
|
39,658
|
|
|
$
|
30,468
|
|
|
$
|
9,423
|
|
|
$
|
2,502
|
|
|
$
|
1,451
|
|
Maintenance
|
49,261
|
|
|
174,031
|
|
|
127,876
|
|
|
85,991
|
|
|
51,340
|
|
|
32,662
|
|
Services and other
|
32,248
|
|
|
11,834
|
|
|
853
|
|
|
651
|
|
|
381
|
|
|
91
|
|
Impact to Prior Period Information
The following table presents the effect of the adoption of Topic 606 on select consolidated statements of operations line items for the three and nine months ended March 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2018
|
|
As Previously Reported
|
|
Adjustments
|
|
As Adjusted
|
|
(Dollars in Thousands, Except per Share Data)
|
Consolidated Statements of Operations
:
|
|
|
|
|
|
License revenue
|
$
|
—
|
|
|
$
|
79,073
|
|
|
$
|
79,073
|
|
Maintenance revenue
|
—
|
|
|
40,897
|
|
|
40,897
|
|
Subscription and software revenue
|
118,126
|
|
|
(118,126
|
)
|
|
—
|
|
Services and other revenue
|
7,745
|
|
|
43
|
|
|
7,788
|
|
Total revenue
|
125,871
|
|
|
1,887
|
|
|
127,758
|
|
Gross profit
|
113,095
|
|
|
1,887
|
|
|
114,982
|
|
Selling and marketing expense
|
25,924
|
|
|
(678
|
)
|
|
25,246
|
|
General and administrative expense
|
14,430
|
|
|
103
|
|
|
14,533
|
|
Total operating expenses
|
61,938
|
|
|
(575
|
)
|
|
61,363
|
|
Income from operations
|
51,157
|
|
|
2,462
|
|
|
53,619
|
|
Interest income
|
23
|
|
|
6,281
|
|
|
6,304
|
|
Provision for income taxes
|
11,756
|
|
|
2,073
|
|
|
13,829
|
|
Net income
|
$
|
37,835
|
|
|
$
|
6,670
|
|
|
$
|
44,505
|
|
Net income per common share:
|
|
|
|
|
|
Basic
|
$
|
0.53
|
|
|
|
|
$
|
0.62
|
|
Diluted
|
$
|
0.52
|
|
|
|
|
$
|
0.61
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
Basic
|
71,828
|
|
|
|
|
71,828
|
|
Diluted
|
72,663
|
|
|
|
|
72,663
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended March 31, 2018
|
|
As Previously Reported
|
|
Adjustments
|
|
As Adjusted
|
|
(Dollars in Thousands, Except per Share Data)
|
Consolidated Statements of Operations
:
|
|
|
|
|
|
License revenue
|
$
|
—
|
|
|
$
|
214,938
|
|
|
$
|
214,938
|
|
Maintenance revenue
|
—
|
|
|
121,890
|
|
|
121,890
|
|
Subscription and software revenue
|
351,540
|
|
|
(351,540
|
)
|
|
—
|
|
Services and other revenue
|
22,014
|
|
|
933
|
|
|
22,947
|
|
Total revenue
|
373,554
|
|
|
(13,779
|
)
|
|
359,775
|
|
Gross profit
|
335,957
|
|
|
(13,779
|
)
|
|
322,178
|
|
Selling and marketing expense
|
73,875
|
|
|
(1,185
|
)
|
|
72,690
|
|
General and administrative expense
|
42,284
|
|
|
6,904
|
|
|
49,188
|
|
Total operating expenses
|
177,022
|
|
|
5,719
|
|
|
182,741
|
|
Income from operations
|
158,935
|
|
|
(19,498
|
)
|
|
139,437
|
|
Interest income
|
204
|
|
|
18,645
|
|
|
18,849
|
|
Provision for (benefit from) income taxes
|
43,561
|
|
|
(107,242
|
)
|
|
(63,681
|
)
|
Net income
|
$
|
110,668
|
|
|
$
|
106,389
|
|
|
$
|
217,057
|
|
Net income per common share:
|
|
|
|
|
|
Basic
|
$
|
1.53
|
|
|
|
|
$
|
3.00
|
|
Diluted
|
$
|
1.51
|
|
|
|
|
$
|
2.97
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
Basic
|
72,402
|
|
|
|
|
72,402
|
|
Diluted
|
73,136
|
|
|
|
|
73,136
|
|
The following table presents the effect of the adoption of Topic 606 on select consolidated balance sheet line items as of June 30, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
|
As Previously Reported
|
|
Adjustments
|
|
As Adjusted
|
|
(Dollars in Thousands)
|
Consolidated Balance Sheets
:
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
Current contract assets
|
$
|
—
|
|
|
$
|
304,378
|
|
|
$
|
304,378
|
|
Contract costs
|
—
|
|
|
20,500
|
|
|
20,500
|
|
Accounts receivable, net
|
21,910
|
|
|
19,900
|
|
|
41,810
|
|
Non-current contract assets
|
—
|
|
|
340,622
|
|
|
340,622
|
|
Total assets
|
264,924
|
|
|
685,400
|
|
|
950,324
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
Current deferred revenue
|
286,845
|
|
|
(271,695
|
)
|
|
15,150
|
|
Non-current deferred revenue
|
28,259
|
|
|
(15,905
|
)
|
|
12,354
|
|
Deferred income taxes
|
—
|
|
|
214,125
|
|
|
214,125
|
|
Other non-current liabilities
|
18,492
|
|
|
(1,424
|
)
|
|
17,068
|
|
Retained earnings
|
305,208
|
|
|
760,299
|
|
|
1,065,507
|
|
Total liabilities and stockholders’ equity
|
$
|
264,924
|
|
|
$
|
685,400
|
|
|
$
|
950,324
|
|
The adoption of Topic 606 had no impact on our total cash flows or net cash provided by operating activities. The impacts of adoption resulted in offsetting shifts in cash flows throughout the components of net income and various changes in working capital balances. The following table presents the effect of the adoption of Topic 606 on select consolidated statement of cash flows line items for the nine months ended March 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended March 31, 2018
|
|
As Previously Reported
|
|
Adjustments
|
|
As Adjusted
|
|
(Dollars in Thousands)
|
Consolidated Statements of Cash Flows:
|
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
Net income
|
$
|
110,668
|
|
|
$
|
106,389
|
|
|
$
|
217,057
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
Deferred income taxes
|
4,467
|
|
|
(127,910
|
)
|
|
(123,443
|
)
|
Changes in assets and liabilities:
|
|
|
|
|
|
Contract assets
|
—
|
|
|
(7,767
|
)
|
|
(7,767
|
)
|
Contract costs
|
—
|
|
|
(651
|
)
|
|
(651
|
)
|
Accounts receivable
|
(964
|
)
|
|
2,393
|
|
|
1,429
|
|
Deferred revenue
|
(11,699
|
)
|
|
27,546
|
|
|
15,847
|
|
Net cash provided by operating activities
|
$
|
127,829
|
|
|
$
|
—
|
|
|
$
|
127,829
|
|
4. Fair Value
We determine fair value by utilizing a fair value hierarchy that ranks the quality and reliability of the information used in its determination. Fair values determined using “Level 1 inputs” utilize unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access. Fair values determined using “Level 2 inputs” utilize data points that are observable, such as quoted prices, interest rates and yield curves for similar assets and liabilities.
Cash equivalents of
$1.0 million
and
$5.0 million
as of
March 31, 2019
and
June 30, 2018
, respectively, were reported at fair value utilizing quoted market prices in identical markets, or “Level 1 inputs.” Our cash equivalents consist of short-term money market instruments.
Financial instruments not measured or recorded at fair value in the accompanying unaudited consolidated financial statements consist of accounts receivable, accounts payable and accrued liabilities. The estimated fair value of these financial instruments approximates their carrying value. The estimated fair value of the borrowings under the Credit Agreement (described below in Note 11, "Credit Agreement") approximates its carrying value due to the floating interest rate.
5. Accounts Receivable, Net
Our accounts receivable, net of the related allowance for doubtful accounts, were as follows as of
March 31, 2019
and
June 30, 2018
:
|
|
|
|
|
|
|
|
|
|
March 31,
2019
|
|
June 30,
2018
|
|
|
|
As Adjusted
|
|
(Dollars in Thousands)
|
Accounts receivable, gross
|
$
|
48,471
|
|
|
$
|
44,513
|
|
Allowance for doubtful accounts
|
(3,178
|
)
|
|
(2,703
|
)
|
Accounts receivable, net
|
$
|
45,293
|
|
|
$
|
41,810
|
|
As of
March 31, 2019
, we had
no
customer receivable balances that individually represented
10%
or more of our net accounts receivable.
6. Property and Equipment
Property, equipment and leasehold improvements consisted of the following as of
March 31, 2019
and
June 30, 2018
:
|
|
|
|
|
|
|
|
|
|
March 31,
2019
|
|
June 30,
2018
|
|
(Dollars in Thousands)
|
Property, equipment and leasehold improvements, at cost:
|
|
|
|
|
|
Computer equipment
|
$
|
8,321
|
|
|
$
|
8,344
|
|
Purchased software
|
24,207
|
|
|
24,225
|
|
Furniture & fixtures
|
6,843
|
|
|
6,850
|
|
Leasehold improvements
|
12,048
|
|
|
12,023
|
|
Property, equipment and leasehold improvements, at cost
|
51,419
|
|
|
51,442
|
|
Accumulated depreciation
|
(43,830
|
)
|
|
(41,636
|
)
|
Property, equipment and leasehold improvements, net
|
$
|
7,589
|
|
|
$
|
9,806
|
|
During the nine months ended
March 31, 2019
, we wrote off fully depreciated property, equipment and leasehold improvements that were no longer in use with gross book values of
$0.2 million
.
7. Acquisitions
Apex Optimisation
On February 5, 2018, we completed the acquisition of all the outstanding shares of Apex Optimisation and affiliates (“Apex”), a provider of software which aligns Advanced Process Control with Planning and Scheduling to unify production optimization, for a total cash consideration of
$23.0 million
. The purchase price consisted of
$18.4 million
of cash paid at closing and an additional
$4.6 million
to be held back until February 2020 as security for certain representations, warranties, and obligations of the sellers. The holdback is recorded in accrued expenses and other current liabilities in our consolidated balance sheet.
An allocation of the purchase price is as follows:
|
|
|
|
|
|
Amount
|
|
(Dollars in Thousands)
|
Tangible assets acquired, net
|
$
|
360
|
|
Identifiable intangible assets:
|
|
Technology-related
|
4,500
|
|
Customer relationships
|
3,800
|
|
Goodwill
|
15,959
|
|
Deferred tax liabilities
|
(1,619
|
)
|
Total assets acquired, net
|
$
|
23,000
|
|
We used the relief from royalty and income approaches to derive the fair value of the technology-related and customer relationship intangible assets, respectively. The weighted-average discount rate (or rate of return) used to determine the value of the Apex intangible assets was
28%
and the effective tax rate used was
21%
. The technology-related and customer relationship intangible assets are each being amortized on a straight-line basis over their estimated useful lives of
seven years
.
The goodwill, which is not deductible for tax purposes, reflects the value of the assembled workforce and the company-specific synergies we expect to realize by selling Apex products and services to our existing customers. The results of operations of Apex have been included prospectively in our results of operations since the date of acquisition.
8. Intangible Assets
We include in our amortizable intangible assets those intangible assets acquired in our business and asset acquisitions. We amortize acquired intangible assets with finite lives over their estimated economic lives, generally using the straight-line method. Each period, we evaluate the estimated remaining useful lives of acquired intangible assets to determine whether events or changes in circumstances warrant a revision to the remaining period of amortization. Acquired intangibles are removed from the accounts when fully amortized and no longer in use.
Intangible assets consisted of the following as of
March 31, 2019
and
June 30, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Effect of Currency Translation
|
|
Net Carrying Amount
|
|
(Dollars in Thousands)
|
March 31, 2019:
|
|
|
|
|
|
|
|
Technology
|
$
|
35,644
|
|
|
$
|
(7,936
|
)
|
|
$
|
(94
|
)
|
|
$
|
27,614
|
|
Customer relationships
|
4,979
|
|
|
(865
|
)
|
|
(80
|
)
|
|
4,034
|
|
Non-compete agreements
|
553
|
|
|
(445
|
)
|
|
—
|
|
|
108
|
|
Total
|
$
|
41,176
|
|
|
$
|
(9,246
|
)
|
|
$
|
(174
|
)
|
|
$
|
31,756
|
|
June 30, 2018:
|
|
|
|
|
|
|
|
Technology
|
$
|
35,898
|
|
|
$
|
(5,182
|
)
|
|
$
|
(254
|
)
|
|
$
|
30,462
|
|
Customer relationships
|
5,181
|
|
|
(377
|
)
|
|
(202
|
)
|
|
4,602
|
|
Non-compete agreements
|
553
|
|
|
(307
|
)
|
|
—
|
|
|
246
|
|
Total
|
$
|
41,632
|
|
|
$
|
(5,866
|
)
|
|
$
|
(456
|
)
|
|
$
|
35,310
|
|
Total amortization expense related to intangible assets is included in cost of license revenue and operating expenses and amounted to approximately
$1.2 million
and
$3.4 million
for the three and nine months ended
March 31, 2019
, respectively, and approximately
$0.5 million
and
$1.6 million
for the three and nine months ended
March 31, 2018
, respectively.
Future amortization expense as of
March 31, 2019
is expected to be as follows:
|
|
|
|
|
Year Ended June 30,
|
Amortization Expense
|
|
(Dollars in Thousands)
|
2019
|
$
|
1,155
|
|
2020
|
4,692
|
|
2021
|
4,736
|
|
2022
|
4,675
|
|
2023
|
4,591
|
|
Thereafter
|
11,907
|
|
Total
|
$
|
31,756
|
|
9. Goodwill
The changes in the carrying amount of goodwill for our subscription and software reporting segment during the nine months ended
March 31, 2019
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Carrying Amount
|
|
Accumulated Impairment Losses
|
|
Effect of Currency Translation
|
|
Net Carrying Amount
|
|
(Dollars in Thousands)
|
June 30, 2018:
|
$
|
142,316
|
|
|
$
|
(65,569
|
)
|
|
$
|
(1,157
|
)
|
|
$
|
75,590
|
|
Adjustment to goodwill from acquisitions
|
(1,524
|
)
|
|
—
|
|
|
—
|
|
|
(1,524
|
)
|
Foreign currency translation
|
—
|
|
|
—
|
|
|
(532
|
)
|
|
(532
|
)
|
March 31, 2019:
|
$
|
140,792
|
|
|
$
|
(65,569
|
)
|
|
$
|
(1,689
|
)
|
|
$
|
73,534
|
|
No
triggering events indicating goodwill impairment occurred during the nine months ended
March 31, 2019
.
10. Accrued Expenses and Other Liabilities
Accrued expenses and other current liabilities consisted of the following as of
March 31, 2019
and
June 30, 2018
:
|
|
|
|
|
|
|
|
|
|
March 31,
2019
|
|
June 30,
2018
|
|
(Dollars in Thousands)
|
Payroll and payroll-related
|
$
|
20,017
|
|
|
$
|
21,796
|
|
Deferred acquisition payments
|
4,600
|
|
|
1,700
|
|
Royalties and outside commissions
|
3,815
|
|
|
3,333
|
|
Share repurchases
|
2,464
|
|
|
1,646
|
|
Professional fees
|
1,732
|
|
|
1,695
|
|
Deferred rent
|
1,308
|
|
|
1,188
|
|
Other
|
8,810
|
|
|
8,157
|
|
Total accrued expenses and other current liabilities
|
$
|
42,746
|
|
|
$
|
39,515
|
|
Other non-current liabilities consisted of the following as of
March 31, 2019
and
June 30, 2018
:
|
|
|
|
|
|
|
|
|
|
March 31,
2019
|
|
June 30,
2018
|
|
|
|
As Adjusted
|
|
(Dollars in Thousands)
|
Deferred rent
|
$
|
5,478
|
|
|
$
|
6,442
|
|
Uncertain tax positions
|
5,492
|
|
|
4,510
|
|
Deferred acquisition payments
|
—
|
|
|
4,294
|
|
Other
|
1,433
|
|
|
1,822
|
|
Total other non-current liabilities
|
$
|
12,403
|
|
|
$
|
17,068
|
|
11. Credit Agreement
On February 26, 2016, we entered into a
$250.0 million
Credit Agreement (the “Credit Agreement”) with JPMorgan Chase Bank, N.A., as administrative agent, Silicon Valley Bank, as syndication agent, and the lenders and other parties named therein (the “Lenders”). On August 9, 2017, we entered into an Amendment to increase the Credit Agreement to
$350.0 million
. The indebtedness evidenced by the Credit Agreement matures on February 26, 2021. Prior to the maturity of the Credit Agreement, any amounts borrowed may be repaid and, subject to the terms and conditions of the Credit Agreement, borrowed again in whole or in part without penalty. We had
$220.0 million
and
$170.0 million
in outstanding borrowings under the Credit Agreement as of
March 31, 2019
and
June 30, 2018
, respectively.
Borrowings under the Credit Agreement bear interest at a rate equal to either, at our option, the sum of (a) the highest of (1) the rate of interest publicly announced by JPMorgan Chase Bank, N.A. as its prime rate in effect, (2) the Federal Funds Effective Rate plus
0.5%
, and (3) the one-month Adjusted LIBO Rate plus
1.0%
,
plus
(b) a margin initially of
0.5%
for the first full fiscal quarter ending after the date of the Credit Agreement and thereafter based on our Leverage Ratio; or the Adjusted LIBO Rate plus a margin initially of
1.5%
for the first full fiscal quarter ending after the date of the Credit Agreement and thereafter based on our Leverage Ratio. We must also pay, on a quarterly basis, an unused commitment fee at a rate of between
0.2%
and
0.3%
per annum, based on our Leverage Ratio. The interest rates as of
March 31, 2019
were
4.00%
on
$159.0 million
of our outstanding borrowings and
4.01%
on
$61.0 million
of our outstanding borrowings.
All borrowings under the Credit Agreement are secured by liens on substantially all of our assets. The Credit Agreement contains affirmative and negative covenants customary for facilities of this type, including restrictions on: incurrence of additional debt; liens; fundamental changes; asset sales; restricted payments; and transactions with affiliates. The Credit Agreement contains financial covenants regarding maintenance as of the end of each fiscal quarter, commencing with the quarter ending June 30, 2016, of a maximum Leverage Ratio of
3.0
to
1.0
and a minimum Interest Coverage Ratio of
3.0
to
1.0
. As of
March 31, 2019
, we were in compliance with these covenants.
12. Stock-Based Compensation
The weighted average estimated fair value of option awards granted was
$20.05
and
$31.26
during the three and nine months ended
March 31, 2019
, respectively, and
$19.21
and
$17.04
during the three and nine months ended
March 31, 2018
, respectively.
We utilized the Black-Scholes option valuation model with the following weighted average assumptions:
|
|
|
|
|
|
|
|
Nine Months Ended
March 31,
|
|
2019
|
|
2018
|
Risk-free interest rate
|
2.8
|
%
|
|
1.7
|
%
|
Expected dividend yield
|
0.0
|
%
|
|
0.0
|
%
|
Expected life (in years)
|
4.6
|
|
|
4.6
|
|
Expected volatility factor
|
26.6
|
%
|
|
28.0
|
%
|
The stock-based compensation expense under all equity plans and its classification in the unaudited consolidated statements of operations for the three and nine months ended
March 31, 2019
and
2018
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
Nine Months Ended
March 31,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
(Dollars in Thousands)
|
Recorded as expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Cost of maintenance
|
$
|
379
|
|
|
$
|
—
|
|
|
$
|
916
|
|
|
$
|
—
|
|
Cost of services and other
|
366
|
|
|
345
|
|
|
1,038
|
|
|
1,119
|
|
Selling and marketing
|
1,228
|
|
|
979
|
|
|
3,687
|
|
|
2,870
|
|
Research and development
|
1,518
|
|
|
1,892
|
|
|
5,451
|
|
|
5,679
|
|
General and administrative
|
2,763
|
|
|
2,137
|
|
|
10,362
|
|
|
7,554
|
|
Total stock-based compensation
|
$
|
6,254
|
|
|
$
|
5,353
|
|
|
$
|
21,454
|
|
|
$
|
17,222
|
|
A summary of stock option and restricted stock unit ("RSU") activity under all equity plans for the nine months ended
March 31, 2019
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options
|
|
Restricted Stock Units
|
|
Shares
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Contractual
Term
(Years)
|
|
Aggregate
Intrinsic Value
(in 000’s)
|
|
Shares
|
|
Weighted
Average
Grant Date
Fair Value
|
Outstanding at June 30, 2018
|
1,369,442
|
|
|
$
|
45.93
|
|
|
7.23
|
|
$
|
64,103
|
|
|
621,700
|
|
|
$
|
53.64
|
|
Granted
|
278,454
|
|
|
113.94
|
|
|
|
|
|
|
|
635,959
|
|
|
114.66
|
|
Settled (RSUs)
|
—
|
|
|
|
|
|
|
|
|
|
|
(326,903
|
)
|
|
59.94
|
|
Exercised
|
(145,214
|
)
|
|
40.75
|
|
|
|
|
|
|
|
—
|
|
|
|
|
Cancelled / Forfeited
|
(83,607
|
)
|
|
67.38
|
|
|
|
|
|
|
|
(71,152
|
)
|
|
67.45
|
|
Outstanding at March 31, 2019
|
1,419,075
|
|
|
$
|
58.54
|
|
|
7.02
|
|
$
|
67,607
|
|
|
859,604
|
|
|
$
|
95.25
|
|
Vested and exercisable at March 31, 2019
|
876,403
|
|
|
$
|
46.06
|
|
|
6.06
|
|
$
|
51,599
|
|
|
—
|
|
|
|
|
Vested and expected to vest as of March 31, 2019
|
1,356,714
|
|
|
$
|
57.71
|
|
|
6.95
|
|
$
|
65,668
|
|
|
807,825
|
|
|
$
|
96.33
|
|
The weighted average grant-date fair value of RSUs granted was
$82.18
and
$114.66
during the three and nine months ended
March 31, 2019
, respectively, and
$75.41
and
$64.18
during the three and nine months ended
March 31, 2018
, respectively. The total fair value of shares vested from RSU grants was
$6.9 million
and
$31.9 million
during the three and nine months ended
March 31, 2019
, respectively, and
$5.7 million
and
$16.0 million
during the three and nine months ended
March 31, 2018
, respectively.
At
March 31, 2019
, the total future unrecognized compensation cost related to stock options was
$9.9 million
and is expected to be recorded over a weighted average period of
2.6
years. At
March 31, 2019
, the total future unrecognized compensation cost related to RSUs was
$30.1 million
and is expected to be recorded over a weighted average period of
2.6
years.
The total intrinsic value of options exercised was
$2.4 million
and
$9.2 million
during the three and nine months ended
March 31, 2019
, respectively, and
$4.9 million
and
$7.9 million
during the three and nine months ended
March 31, 2018
, respectively. We received cash proceeds from option exercises of
$1.4 million
and
$5.9 million
during the three and nine months ended
March 31, 2019
, respectively, and
$3.9 million
and
$7.4 million
during the three and nine months ended
March 31, 2018
, respectively. We withheld withholding taxes on vested RSUs of
$2.4 million
and
$12.0 million
during the three and nine months ended
March 31, 2019
, respectively, and
$2.0 million
and
$5.5 million
during the three and nine months ended
March 31, 2018
, respectively.
At
March 31, 2019
, common stock reserved for future issuance or settlement under equity compensation plans was
9.8 million
shares.
During the nine months ended
March 31, 2019
, we granted performance-based long-term incentive awards (“performance awards”) to certain of our executives, including our named executive officers. The performance period for each performance award is either of the following two-year periods: (i) fiscal year 2019 - fiscal year 2020, or (ii) fiscal year 2020 - fiscal year 2021. Participants receive RSUs on the grant date associated with achievement of all performance targets. The performance targets for the performance awards are based on meeting annual spend growth, defined as an estimate of the annualized value of our portfolio of term license arrangements, as of a specific date, and the performance goals set out in the executive bonus plan for each fiscal year, such as free cash flow. If the performance targets are met during one of the two performance periods and the participant remains actively employed by us, the RSUs convert to time-based vesting wherein fifty percent of the awards immediately vest, and the remaining fifty percent are subject to additional service vesting over a three-year period. In general, if the performance targets are not met, or if the participant is no longer actively employed by us prior to the performance targets being met, the participant forfeits all of the RSUs.
During the nine months ended
March 31, 2019
, we granted
382,373
RSUs in connection with the performance awards. As of
March 31, 2019
, all of the RSUs issued in connection with the performance awards are unvested and outstanding.
We record compensation expense for the performance awards based on the fair value of the awards, in an amount proportionate to the service time rendered by the participant, when it is probable that the achievement of the goals will be met. The total fair value of the performance awards granted during the nine months ended
March 31, 2019
was estimated using the closing price on the date of grant as well as the estimated probable achievement levels of the performance metrics. If the performance-based conditions are not met, no compensation cost is recognized and any recognized compensation cost is reversed. As of
March 31, 2019
, we concluded that the performance metrics related to the performance awards were not probable of achievement; therefore, no compensation expense was recognized during the nine months ended
March 31, 2019
.
On July 26, 2018, our Board of Directors approved the Aspen Technology, Inc. 2018 Employee Stock Purchase Plan (the "ESPP"). The ESPP is intended to be a qualified employee stock purchase plan under Section 423 of the Internal Revenue Code of 1986, or the IRC. The ESPP was approved at our Annual Meeting of Stockholders on December 7, 2018. The ESPP currently provides for a purchase price equal to
85%
of the lower of (a) the fair market value of the common stock on the first trading day of each ESPP offering period and (b) the fair market value of the common stock on the last day of the offering period. Our initial offering period is for January 1, 2019 through June 30, 2019.
13. Stockholders’ Equity
Stock Repurchases
On January 22, 2015, our Board of Directors approved a share repurchase program (the "Share Repurchase Program") for up to
$450.0 million
worth of our common stock. On April 26, 2016, June 8, 2017, April 18, 2018, December 6, 2018, and April 17, 2019, the Board of Directors approved a
$400.0 million
,
$200.0 million
,
$200.0 million
,
$100.0 million
, and
$200.0 million
increase in the Share Repurchase Program, respectively. The timing and amount of any shares repurchased are based on market conditions and other factors. All shares of our common stock repurchased have been recorded as treasury stock under the cost method.
During the three and nine months ended
March 31, 2019
, we repurchased
777,569
and
2,426,476
shares of our common stock in the open market for
$75.0 million
and
$225.0 million
, respectively. As of
March 31, 2019
, the total remaining value under the Share Repurchase Program was approximately
$221.3 million
.
Accumulated Other Comprehensive Income
As of
March 31, 2019
and
June 30, 2018
, accumulated other comprehensive income was comprised of foreign currency translation adjustments of
$1.2 million
and
$1.4 million
, respectively.
14. Net Income Per Share
Basic income per share is determined by dividing net income by the weighted average common shares outstanding during the period. Diluted income per share is determined by dividing net income by diluted weighted average shares outstanding during the period. Diluted weighted average shares reflect the dilutive effect, if any, of potential common shares. To the extent their effect is dilutive, employee equity awards and other commitments to be settled in common stock are included in the calculation of diluted net income per share based on the treasury stock method.
The calculations of basic and diluted net income per share and basic and dilutive weighted average shares outstanding for the three and nine months ended
March 31, 2019
and
2018
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
Nine Months Ended
March 31,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
|
As Adjusted
|
|
|
|
As Adjusted
|
|
(Dollars and Shares in Thousands, Except per Share Data)
|
Net income
|
$
|
61,587
|
|
|
$
|
44,505
|
|
|
$
|
158,869
|
|
|
$
|
217,057
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
69,423
|
|
|
71,828
|
|
|
70,286
|
|
|
72,402
|
|
|
|
|
|
|
|
|
|
Dilutive impact from:
|
|
|
|
|
|
|
|
|
|
|
|
Employee equity awards
|
737
|
|
|
835
|
|
|
856
|
|
|
734
|
|
Dilutive weighted average shares outstanding
|
70,160
|
|
|
72,663
|
|
|
71,142
|
|
|
73,136
|
|
|
|
|
|
|
|
|
|
Income per share
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
0.89
|
|
|
$
|
0.62
|
|
|
$
|
2.26
|
|
|
$
|
3.00
|
|
Dilutive
|
$
|
0.88
|
|
|
$
|
0.61
|
|
|
$
|
2.23
|
|
|
$
|
2.97
|
|
For the three and nine months ended
March 31, 2019
and
2018
, certain employee equity awards were anti-dilutive based on the treasury stock method. The following employee equity awards were excluded from the calculation of dilutive weighted average shares outstanding because their effect would be anti-dilutive as of
March 31, 2019
and
2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
Nine Months Ended
March 31,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
(Shares in Thousands)
|
Employee equity awards
|
803
|
|
|
240
|
|
|
803
|
|
|
445
|
|
Included in the table above are options to purchase
250,741
and
250,741
shares of our common stock during the three and nine months ended
March 31, 2019
, respectively, which were not included in the computation of dilutive weighted average shares outstanding, because their exercise prices ranged from
$98.13
per share to
$116.00
per share and were greater than the average market price of our common stock during the period then ended. These options were outstanding as of
March 31, 2019
and expire at various dates through October 23, 2028.
15. Income Taxes
The effective tax rate for the periods presented was primarily the result of income earned in the U.S., taxed at U.S. federal and state statutory income tax rates, income earned in foreign tax jurisdictions taxed at the applicable rates, as well as the impact of permanent differences between book and tax income.
On December 22, 2017, the President of the United States signed into law Public Law No. 115-97, commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”), following its passage by the United States Congress. The Tax Act made significant changes to U.S. federal income tax laws, including reduction of the corporate tax rate from
35.0%
to
21.0%
, and the implementation of a territorial tax system resulting in a one-time transition tax on the unremitted earnings of our foreign subsidiaries. The Tax Act also contains additional provisions that are effective for us in fiscal year 2019, including a new deduction for Foreign-Derived Intangible Income (“FDII”), the repeal of the domestic production activity deduction, a new tax on Global Intangible Low-Taxed Income (“GILTI”), and increased limitations on the deductibility of certain executive compensation.
Our effective tax rate was
18.2%
and
14.7%
during the three and nine months ended
March 31, 2019
, respectively, and
23.7%
and
(41.5)%
during the three and nine months ended
March 31, 2018
, respectively. Our effective tax rate decreased for the three months ended
March 31, 2019
compared to the same period in
2018
primarily due to a reduction in the statutory tax rate from
28.1%
to
21.0%
. Our effective tax rate increased for the nine months ended
March 31, 2019
compared to the same period in
2018
due to the tax benefit recorded for the revaluation of our deferred tax liabilities resulting from the adoption of Topic 606. We adopted Topic 606 effective July 1, 2018 using the full retrospective method, following the reduction of federal income tax rates due to the enactment of the Tax Act. The reduction in the corporate tax rate from
35.0%
to the blended tax rate of
28.1%
reduced our deferred tax liabilities established under Topic 606, which resulted in an income tax benefit for the nine months ended
March 31, 2018
.
During the three and nine months ended
March 31, 2019
, our income tax expense was driven primarily by pre-tax profitability in our domestic and foreign operations and the impact of permanent items. The permanent items are predominantly the FDII deduction and tax credits for research expenditures.
The Tax Act has several significant changes that impact all taxpayers, including a transition tax, which is a one-time tax charge on accumulated, undistributed foreign earnings. The calculation of accumulated foreign earnings requires an analysis of each foreign entity’s financial results going back to 1986. We have concluded that we will not be subject to the transition tax associated with our accumulated, undistributed foreign earnings. We do not provide deferred taxes on unremitted earnings of our foreign subsidiaries as we intend to indefinitely reinvest those earnings.
The Tax Act also included a new provision designed to tax global intangible low-taxed income (“GILTI”). Under U.S. GAAP, we are allowed to make an accounting policy choice to either (i) treat taxes due on future U.S. inclusions in taxable income related to GILTI as a current-period expense when incurred (the "period cost method"); or (ii) factor in such amounts into the measurement of our deferred taxes (the "deferred method"). Our selection of an accounting policy related to the GILTI tax provisions depends, in part, on analyzing our global income to determine whether we expect to have future U.S. inclusions in taxable income related to GILTI and, if so, what the impact is expected to be. While our future global operations depend on a number of different factors, we do expect to have future U.S. inclusions in taxable income related to GILTI. Further, we have made a policy decision to record GILTI tax as a current-period expense when incurred.
Deferred income taxes are recognized based on temporary differences between the financial statement and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using the statutory tax rates and laws expected to apply to taxable income in the years in which the temporary differences are expected to reverse. Valuation allowances are provided against net deferred tax assets if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income and the timing of the temporary differences becoming deductible. Management considers, among other available information, scheduled reversals of deferred tax liabilities, projected future taxable income, limitations of availability of net operating loss carryforwards, and other matters in making this assessment.
16. Commitments and Contingencies
Operating Leases
We lease certain facilities under non-cancellable operating leases with terms in excess of
one year
. Rental expense on leased facilities under operating leases was approximately
$2.1 million
and
$6.2 million
during the three and nine months ended
March 31, 2019
, respectively, and approximately
$2.1 million
and
$6.1 million
during the three and nine months ended
March 31, 2018
, respectively.
Standby letters of credit for
$4.0 million
and
$3.5 million
secure our performance on professional services contracts, certain facility leases and potential liabilities as of
March 31, 2019
and
June 30, 2018
, respectively. The letters of credit expire at various dates through fiscal 2025.
17. Segment Information
Operating segments are defined as components of an enterprise that engage in business activities for which discrete financial information is available and regularly reviewed by the chief operating decision maker in deciding how to allocate resources and to assess performance. Our chief operating decision maker is our President and Chief Executive Officer.
The subscription and software segment is engaged in the licensing of process optimization and asset performance management software solutions and associated support services, and includes our license and maintenance revenue. The services and other segment includes professional services and training, and includes our services and other revenue. We do not track assets or capital expenditures by operating segments. Consequently, it is not practical to present assets, capital expenditures, depreciation or amortization by operating segments.
The following table presents a summary of our reportable segments’ profits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription and Software
|
|
Services and Other
|
|
Total
|
|
(Dollars in Thousands)
|
Three Months Ended March 31, 2019
|
|
|
|
|
|
|
|
|
Segment revenue
|
$
|
140,371
|
|
|
$
|
7,613
|
|
|
$
|
147,984
|
|
Segment expenses (1)
|
(54,550
|
)
|
|
(7,740
|
)
|
|
(62,290
|
)
|
Segment profit
|
$
|
85,821
|
|
|
$
|
(127
|
)
|
|
$
|
85,694
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2018, As Adjusted
|
|
|
|
|
|
|
|
|
Segment revenue
|
$
|
119,970
|
|
|
$
|
7,788
|
|
|
$
|
127,758
|
|
Segment expenses (1)
|
(52,368
|
)
|
|
(7,238
|
)
|
|
(59,606
|
)
|
Segment profit
|
$
|
67,602
|
|
|
$
|
550
|
|
|
$
|
68,152
|
|
|
|
|
|
|
|
Nine Months Ended March 31, 2019
|
|
|
|
|
|
|
|
|
Segment revenue
|
$
|
381,571
|
|
|
$
|
21,005
|
|
|
$
|
402,576
|
|
Segment expenses (1)
|
(161,808
|
)
|
|
(22,943
|
)
|
|
(184,751
|
)
|
Segment profit
|
$
|
219,763
|
|
|
$
|
(1,938
|
)
|
|
$
|
217,825
|
|
|
|
|
|
|
|
Nine Months Ended March 31, 2018, As Adjusted
|
|
|
|
|
|
|
|
|
Segment revenue
|
$
|
336,828
|
|
|
$
|
22,947
|
|
|
$
|
359,775
|
|
Segment expenses (1)
|
(150,357
|
)
|
|
(20,793
|
)
|
|
(171,150
|
)
|
Segment profit
|
$
|
186,471
|
|
|
$
|
2,154
|
|
|
$
|
188,625
|
|
(1)
Our reportable segments’ operating expenses include expenses directly attributable to the segments. Segment expenses include selling and marketing and research and development expenses. Segment expenses do not include allocations of general and administrative expense; interest income, net; and other (expense), net.
Reconciliation to Income before Income Taxes
The following table presents a reconciliation of total segment profit to income before income taxes for the three and nine months ended
March 31, 2019
and
2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
Nine Months Ended
March 31,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
|
As Adjusted
|
|
|
|
As Adjusted
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
Total segment profit for reportable segments
|
$
|
85,694
|
|
|
$
|
68,152
|
|
|
$
|
217,825
|
|
|
$
|
188,625
|
|
General and administrative expense
|
(14,863
|
)
|
|
(14,533
|
)
|
|
(46,246
|
)
|
|
(49,188
|
)
|
Interest income, net
|
4,485
|
|
|
4,819
|
|
|
15,061
|
|
|
14,897
|
|
Other (expense), net
|
(34
|
)
|
|
(104
|
)
|
|
(485
|
)
|
|
(958
|
)
|
Income before income taxes
|
$
|
75,282
|
|
|
$
|
58,334
|
|
|
$
|
186,155
|
|
|
$
|
153,376
|
|